Crowdfunding Puts Money with Public Interest

After losing their London-based publisher, co-editors Ruby Russell and Katherine Hunt of the grassroots art magazine Teller were forced to look in a new direction for their second issue. Self-funding was out of the question, so the editors launched a campaign on the crowdfunding platform Kickstarter to ask the public for help.

"It allowed us to pre-sell copies of our magazine and put the full cover price toward production costs, with some people donating larger sums," says Russell. "It's very easy to set up and use, and people responded very generously." With an original funding goal of $4,000, they actually received a few hundred dollars more by the time they reached their deadline.

Asking for public donations to get a project off the ground is not a new idea. Even Beethoven pre-sold concert tickets to raise funds for his new compositions. But these days, "crowdfunding" — going to the Internet to ask the public for small financial contributions to support projects — has infiltrated the arts scene and is extending to various causes and charities on a global level.

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Everything from music videos and books to disaster relief, community outreach, citizen journalism and small startup companies are being funded by creating a campaign on one of several online crowdfunding platforms. Some have even created campaigns to raise money for a root canal or personal travel.

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The concept echoes microfinancing platforms like Kiva, which makes tiny loans to alleviate poverty around the world. The microloans typically go to poor entrepreneurs — often but not exclusively in the developing world — with little or no access to traditional banking. Developed-world donors to Kiva and its peers expect to get their money back once the borrower starts generating additional income from whatever the loan financed. In contrast, crowdfunding generally is closer to gift-giving.

Kickstarter, one of the most popular crowdsourcing platforms for creative projects, was launched in 2009 when co-founder Perry Chen wanted to organize a concert in New Orleans. He intended to recoup the investment through tickets sales but was wary of the risk. Though the concert never got off the ground, Chen was inspired by the need for a trigger mechanism to test the waters first.

"Kickstarter came by thinking about what kind of experience we would want to have both as someone backing a project and someone creating a project," says co-founder Yancey Strickler. "So we did our best to create that."

It works by creating a project profile on Kickstarter and setting a fund goal and deadline. Kickstarter will help curate the project to make it more marketable, and not all projects submitted to the platform are accepted.

Contributors then pledge small amounts, usually starting at $10. If the goal is met by the funding deadline, contributions are charged to the credit cards of those who pledged. The project then receives its funding through Amazon, minus the 5 percent commission that Kickstarter takes from successful projects. Kickstarter reports about 45 percent of all projects reach their funding goals.

If the goal is not met, no one is charged and nothing goes to the project. This all-or-nothing philosophy creates a "narrative arch," or a call to action, in which people are motivated to help the project cross the finish line. During the final day of the campaign, for example, pledgers who want to see the project through to fruition may increase their donation and rally their friends to help meet the goal.

Other crowdfunding startups are less flexible. "If people are passionate about something, they're going to do it no matter what," says Erica Labovitz, director of marketing at IndieGoGo, which automatically charges donors when they pledge, whether or not the project meets its funding goal.

IndieGoGo takes 9 percent for unsuccessful projects and 4 percent for successful ones. Unlike Kickstarter, it requires no application, has no screening process and plays no role in the curation.

Crowdfunding can validate an idea, "to test it out and get a pulse on it," Labovitz says. "If [the public is] voting on it with their dollars, then you're on to something." And while raising money for a project, it also serves as a marketing tool as people pledging money share projects with their contacts and build a community of supporters for future endeavors.

It's also a way to nurture good ideas that don't fit conventional financing. IndiGoGo was created in 2008 to capture funding for independent film. It expanded to all industries a year later, and is now the world's largest crowdfunding platform, with more than 30,000 campaigns in 200 countries.

Other crowdfunding platforms have cropped up: RocketHub and the Europe-based Fans Next Door raise money for the creative arts; Sellaband helps musicians source money for recording, touring and promotion.

"I think crowdfunding is going to become more important as [governments] all over the world seem to be slashing funding," says Jamie King, CEO of VODO, an online distribution platform that uses crowdfunding to provide free downloads of films. (Fast Company called it "Netflix-meets-Kickstarter for indie film fans.") "There's a general trend toward not being so keen anymore to fund creative work out of the public. I don't see that changing anytime soon, because in Europe, the first thing that goes is arts funding." (And in the U.S. ...)

Even so, Kickstarter and IndieGoGo officials say crowdfunding should complement, not replace, more traditional funding sources. "It should fill in the gaps while you're waiting for other funding, to use this in tandem to the things you're already doing," Labovitz says.

"People are becoming more comfortable with exchanging money online and spreading information through their social networks, so it's becoming easier and faster to share, leading to a rapid growth of crowdsourced funding,"

Before crowdfunding, the average person needed access to a wealthy patron or a willing bank to get an idea off the ground. But crowdfunding found a way around those bottlenecks through "incentivized voluntary support," small rewards for people who pledge money.

Writer and editor Carmen Morais' recent project on IndieGoGo raised money to create a free limited-edition comic book for children affected by last May's tornado in Joplin, Mo. By blogging and using social media, Morais and her team raised $6,000 in six days from family and friends. "We also got a lot of complete strangers giving us $20 each," she says.

"Often, the amount of money needed to realize a project is really quite small, and getting a bunch of people to throw in $10 can be much more effective than filling out countless application forms for grants," says Teller magazine's Russell.

Gonzo political activists The Yes Men raised $16,000 selling credits in their next production by offering their film on VODO as a free download. VODO liaisons with partners like Bittorrent to advertise free downloads. For each download, users are asked to donate to the filmmakers. (A donor's small reward might be an onscreen credit as a co-financer. )

"We're a post-distribution Kickstarter," King says. "We distribute the films first and then use them as a way of attracting large audiences."

Yancey Strickler says the key to a successful campaign is a well-articulated project, typically with a video component, and a compelling reward structure. Depending on the project, rewards can be anything from an autographed book, a copy of a CD to handwritten thank you notes.

"The funding of your project is not Kickstarter's job, it's yours," Strickler says. "It's going to live or die based on how hard you work for it, how you spread the word and how you manage to engage your audience."

Yet a common complaint among campaigners is having to constantly urge their close friends and relatives to pitch in. Creators must be prepared to constantly popularize their projects through social media, a challenge for those without a strong web savvy.

But more than the perks, Yancey Strickler says that crowdfunding taps into people's inner philanthropist. People want to be a part of new ideas even if they might lack time, resources or energy to come up with them on their own. It democratizes the funding process.

"I really believe that people want to be part of a group that is doing something positive," says Morais. "One donor posted a comment saying, 'Thank you to all the creative people who give uncreative people like me a way to help.' In a crowdfunding project, the donors are no less valuable than the project creators. We're equal partners working toward a goal we both agree is good.